Climate change to hit credit ratings: S&P

Climate change will be a significant factor in sovereign credit ratings and is already putting them under downward pressure, Standard & Poor's Ratings Services (S&P) warned on Thursday.

In a new report, S&P argued that climate change – and particularly global warming - will hit countries' economic growth rates, their external performance and public finances.

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"Climate change is likely to be one of the global mega-trends impacting sovereign creditworthiness, in most cases negatively," it said in the report.

Recent bouts of extreme weather – from Typhoon Haiyan in the Phillipines to heavy flooding across the United Kingdom -- have drawn attention to the financial and economic effects of climate change.

They have also highlighted the growing cost of natural disasters. According to reinsurer Munich Re, overall losses in East Asia, for instance, used to be below $10 billion per year, but over the past decade have regularly topped $20 billion – and peaked at over $50 billion.

But despite this surge in extreme weather events, S&P has not, to date, revised the rating of a sovereign as a result.

"However, assuming that extreme weather events are on the rise in terms of frequency and destruction, how this trend could feed through to our ratings on sovereign states bears consideration," it said in the report.

According to S&P, poorer and lower-rated countries will be the hardest hit by climate change. All of the 20 nations ranked most-vulnerable by S&P are emerging markets, with the vast majority in Africa or Asia.

"This is in part due to their reliance on agricultural production and employment, which can be vulnerable to shifting climate patterns and extreme weather events, but also due to their weaker capacity to absorb the financial cost," S&P said. It added that this could contribute to rising global rating inequality.

Vietnam, Bangladesh and Senegal topped the list of countries most vulnerable to climate change, whereas developed nations – the United States and Europe – were at the bottom of the ranking.

Climate change in focus

The report comes at a time of increasing concern about the economic impact of climate change, as politicians, business leaders and think tanks across the word point to the rising risks and associated costs.

Earlier this month, insurance market Lloyd's of London warned that insurance companies need to factor climate change, and in particular extreme weather events, into their risk models.

Meanwhile, the Organisation for Economic Co-operation and Development (OECD) said that the costs of natural and man-made disasters have more than doubled in the last ten years, rising to $1.5 trillion in damages and economic losses.

But governments have also joined the chorus of organizations cautioning on the effects of a changing climate. According to the U.S.' National Climate Assessment, the impacts of climate change are extremely wide-ranging, and include human health, weather and the environment.